Fuelled by a credit boom, Hong Kong home prices are "200 per cent higher than in 2003" but "rents have grown 35 per cent in real terms and inflation-adjusted incomes stagnated", it says, adding the bubble index in the city rose to risky levels in early 2012.

"This has made Hong Kong one of the world's most expensive cities for private housing," said Claudio Saputelli, the head of global real estate at UBS' chief investment office.

The report says the London housing market is in bubble-risk territory with a score of 1.88, followed by Hong Kong at 1.65, and Sydney with 1.39.

Hong Kong, however, has the worse affordability levels, with home prices decoupled from local household earnings as both local and global investment demand push them higher, it says.

It takes a skilled service-sector worker in London about 14 years of average earnings to buy a 60 square metre home. In Hong it is 21 years and in New York, 11 years.

The report says weaker economic growth in China, a worsening job market and the risk of rising interest rates darken the outlook for property.

"Moreover, construction numbers are at their post-2004 peak, easing the supply shortage and adding to the negative outlook," said Matthias Holzhey, an economist at UBS' chief investment office and wealth management unit.

The bank expects home prices to decline by more than 10 per cent by the end of next year.

Forecasting a 17 per cent price drop in the next 27 months, CLSA last week said Hong Kong's property sector is heading into a bear market.

Demand has been dented by increasingly sour market sentiment. Swire Properties' luxury residential project in Cheung Sha, Lantau Island, sold just one of 24 houses put on sale when the tender closed on Tuesday.

It said a 2,586 square feet house at Whitesands was sold for HK$66.6 million, or HK$25,754 per square foot.

Thomas Lam, head of valuation and consultancy at Knight Frank property agency, said Hong Kong home prices could fall up to 10 per cent in the worst scenario if interest rates rise 1 or 2 percentage points next year.

"Hong Kong will have a correction but is unlikely to see a big fall," he said, adding that he believes primary and secondary market transactions would shrink further.

London house prices have surged 40 per cent since the beginning of 2013 because of demand from overseas buyers, attractive rental yields and population growth, said UBS.